The expansion of The expansion of firmsfirms

Reasons of Reasons of integrationintegration

Types of integrationGroup member:

S.5B

Crystal Wong

Sammi Sit

Suki Cheung

Teresa Sum

Reasons of integration

•Enjoy economies of scale The size of firm becomes bigger after integration, the scale of

production will , then the average cost will

• Closing down some plants to reduce loss After integration, less manpower is needed, labour costs can be save. Some inefficient plants will be closed.

Types of integration

Vertical integration at different stages of production of the same

product combine together.

Vertical backward integration

combines with the firm in its preceding stage of production.

Vertical backward integration

Example: the glasses factory combines with the plastic factory, which are the elements of producing glasses.

Glasses factory Plastic factory

Vertical forward integration

Example: the glasses factory combines with the glasses retailing shop.

Glasses factory

~combines with the firm in its later stage of production.

Types of integration

Conglomerate integration combination of firms engaging in different

lines of production.

Example: Hutchison Whampoa limited company integrates with some other business firms.

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Advantages of integration

1. To guarantee the supply of raw material (vertical backward)

2. To guarantee the market of product (vertical forward)

3. To diversify production and reduce risk (conglomerate)